Effects of U.S. Tax Policy on Greenhouse Gas Emissions

Current federal tax provisions have minimal net effect on greenhouse gas emissions, according to a new report from the National Research Council. The report found that several existing tax subsidies have unexpected effects, and others yield little reduction in greenhouse gas emissions per dollar of revenue loss.

At the request of Congress, a National Research Council committee evaluated the most important tax provisions that affect carbon dioxide and other greenhouse gas emissions and to estimate the magnitude of the effects. The report considers both energy-related provisions — such as transportation fuel taxes, oil and gas depletion allowances, subsidies for ethanol, and tax credits for renewable energy — as well as broad-based provisions that may have indirect effects on emissions, such as those for employer-provided health insurance, owner-occupied housing, and incentives for investment in machinery.

Using energy economic models based on the 2011 U.S. tax code, the committee found that the combined effect of energy-related tax subsidies on greenhouse gas emissions is minimal and could be negative or positive. It noted that estimating the precise impact of the provisions is difficult because of the complexities of the tax code and regulatory environment. However, it found that these provisions achieve very little greenhouse gas reductions at substantial cost; the U.S. Department of the Treasury estimates that the combined federal revenue losses from energy-sector tax subsidies in 2011 and 2012 totaled $48 billion. While few of these provisions were created solely to reduce greenhouse gas emissions, they are a poor tool for doing so, the report says.

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